Bitcoin's Unanticipated Drop: 15% Price Decline After ETF Launch Raises Questions

Bitcoin experiences a 15% decline after the launch of 10 new Bitcoin exchange-traded funds (ETFs).
Grayscale Bitcoin Trust (GBTC) sees a significant outflow of $3.4 billion, impacting Bitcoin’s market dynamics.

In a surprising turn of events, Bitcoin has faced a notable 15% decline in value following the highly anticipated launch of 10 new Bitcoin exchange-traded funds (ETFs). This downturn challenges the earlier optimism surrounding the introduction of mainstream stock market funds tracking the leading cryptocurrency.

Launched on January 11th with the approval of the US Securities and Exchange Commission, these 10 new Bitcoin ETFs managed to attract a total of $4.7 billion by the end of Tuesday. Despite this substantial influx of funds, Bitcoin’s price, which stood at $46,100 on the day of the ETFs’ debut, has undergone a steady decline.

A significant contributor to this market shift is the Grayscale Bitcoin Trust (GBTC), the world’s largest Bitcoin investment vehicle. It experienced an outflow of $3.4 billion since its conversion to an ETF. Analysts speculate that a considerable portion of the inflow into the new ETFs resulted from investors exiting Grayscale, attracted by the lower fees of its competitors.

🚀 #BlackRock's IBIT #Bitcoin ETF is making waves! 📊 It's surged into the Top 10 ETFs with an impressive $2,100,000,000 in inflows this year.

Mainstream ETFs, including those from big players like BlackRock, haven't attracted as much capital as expected. In contrast,… pic.twitter.com/B17KfKUQZI

— Collin Brown (@CollinBrownXRP) January 24, 2024

Update for the #Bitcoin ETF Cointucky Derby. $515 million came out of $GBTC today for a total of $3.96 billion in outflows. Newborn 9 saw $249 million flow in. Still waiting on BlackRock's numbers tho. Likely another net outflow day unless $IBIT pulled in more than $266 million. pic.twitter.com/nYFIAsIn2A

— James Seyffart (@JSeyff) January 24, 2024

Douglas Comin, a senior crypto options trader at XBTO, highlighted the substantial exit from Grayscale, suggesting that many inflows into the new ETFs were not fresh capital but a shift from Grayscale to other ETFs.

The conversion of Grayscale’s decade-old bitcoin trust allowed investors, who were previously selling shares at a discount, to exit their holdings entirely. The fund’s value decreased from $28 billion to $22 billion in just a few weeks.

Arthur Hayes’ Perspective on Bitcoin’s Future

Amidst these market movements, Arthur Hayes, a renowned crypto expert, shared his analysis. He believes Bitcoin’s decline is not solely due to the capital outflow from GBTC. Hayes argues that the anticipation of the Federal Reserve not renewing the Bank Term Funding Plan (BTFP) plays a significant role. According to Hayes, the non-renewal of BTFP could trigger a mini-financial crisis, leading the Federal Reserve to adopt measures like lowering interest rates or restarting quantitative easing. This expectation is reflected in Bitcoin’s price trends.

Hayes predicts that Bitcoin will find a local bottom between $30,000 and $35,000 before the March 12th decision on BTFP renewal, with a 30% adjustment from the ETF approval high point equating to about $33,600. Acting on this belief, he has bought put options with a strike price of $35,000 expiring on March 29th, 2024, and has liquidated his positions in Solana and Bonk, albeit at a slight loss.